In times gone by investment into the Asian economies had been in many ways a geared play on US growth. As the US eats, drinks, drives, wears, watches and smokes such a huge volume of Asia's products, it has been the US consumer that has been the real powerhouse behind the growth in Asian markets.
But as the US slumps into a potential recession and the other developed markets of the western world feel the pinch following the fall out of the problems surrounding sub-prime lending and other issues surrounding the banking world; Asian economies are appearing somewhat insulated against all of this and continue to move forward. Indeed, the Asian markets have learned valuable lessons following their own currency and banking problems of the mid/late 1990s and at the current time sees their local banking systems in seemingly good health.
This has led to continued debate and rhetoric about potential decoupling of the largest market in the world from the Asian market. Many of these discussions attempt to address concerns over the Asian markets standing strong or even escaping with little or no effect from the recession in the US. Cynics would argue that many members of the 'De-coupling Camp' are painting an inappropriate picture; overstating the negative economic scenario in the US, while boasting about the robustness of an Asian market which could withstand the economic recession in US by relying on their domestic demand. However, from a statistical standpoint, there is some justification; a 5% US unemployment rate reported in December, slower than expected retail sales, Citigroup and Merrill Lynch both write down a significant amount of bad loans and the credit crunch are all undeniably indicators of potential recession.
There is no denying that the Asian region is still hugely reliant upon exports, although there is clear evidence of increased intra-regional trade as demand and wealth has grown within the region and perhaps aided by the seemingly increased political harmony among the area's political heavyweights. Despite this, the US remains the customer of choice and although there has been a reduction of exports to the US; Europe has been gleefully shipping in Asian products thanks to its strong currency and relatively good economic performance. This chink in the de-coupling's armour may well be short lived as the Asian currencies are appreciating versus the euro as well as the dollar.
The Asian economies may welcome a slowdown of global growth, in particular China following a number of years of double-digit export-lead growth. Post the Beijing Olympics later this year it is difficult to predict which direction China will take as the onus will shift away from heavy industrial output and into consumption and services.
At Origen we fully accept the arguments that there is increased evidence of the de-coupling of Asia and the US, although we do not believe that this will happen during the current economic cycle. Indeed, on the back of the recent consumer borne US economic issues we have reduced some of our exposure to the Asian region.
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